DTN Early Word Livestock Comments

Cattle: Lower Futures: Mixed Live Equiv: $198.86 +$0.81*

Hogs: Steady Futures: Mixed Lean Equiv: $135.77 +$0.36**

*Based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading percentages.)

** based on formula estimating lean hog equivalent of gross packer revenue.

GENERAL COMMENTS:

Cattle did not see much volatility Monday with most contracts confined to price swings of around $1.00. The market was searching for direction and could only find it from weaker corn prices. Boxed beef was higher, but traders did not put much emphasis on that as the strength might be short-lived once retail demand is satisfied after the weekend. Choice cuts increased $1.36 with select up $0.65. Cash is expected to be no better than steady this week as packers have a portion of their cattle already contracted. This leaves them less aggressive, as they have been the past few weeks, generally resulting in weakness. The Commitment of Traders report showed funds as net buyers of 17,840 contracts of live cattle, moving their net-long positions to 37,505.

As expected, cash hogs were weaker Monday with a decline on the National Direct Afternoon report of $0.94. The pattern has been for stronger cash on Tuesday and that is again expected this week. However, slaughter was substantially lower, which may indicate packers may not be interested in paying up to obtain the hogs they need. Reducing slaughter limits the amount of hogs needed and may also improve cutouts and packer profit potential. Cutouts were higher, posting a gain of $0.36. The Commitment of Traders report showed funds as net buyers of 5,730 contracts, increasing their long positions to 51,075 contracts.

	BULL SIDE		BEAR SIDE
1)	Further weakness of corn price overnight may provide further strength in feeder cattle with some spillover to live cattle.	1)	Cash cattle are expected to trade steady to lower this week due to packers already having cattle contracted.
2)	The liquidation of cattle due to the drought in areas will tighten supplies down the road. Futures are indicating cattle prices to be $20 higher by next spring.	2)	There is a significant amount of cattle coming to the market that needs to be absorbed. Demand will need to hold, or prices could falter as beef would back up into the market.
3)	Packers have shown the pattern of buying hogs more aggressively on Tuesdays and that is expected again today.	3)	Hog slaughter is running behind a year ago and Monday's slow slaughter pace may indicate packers may be holding back in an attempt to reduce cash prices.
4)	Fund traders are increasing their long positions in the expectation of higher prices. October carries a large discount to cash with expectations price will need to move higher if demand remains strong.	4)	Hog futures are overbought and ready for a price correction. Traders may pull back if cash fails to improve.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. Also, stay tuned to our Quick Takes throughout the day for periodic updates on the futures markets.

Robin Schmahl can be reached at rschmahl@agdairy.com

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